Consumers are feeling the heat of price pressures once again. Inflation has been climbing, raising concerns about the economy’s health. Due to this, the retail sector took a hit in January, with sales declining sharply. However, spending at food services and drinking places was not hampered as an increasing number of Americans continued to eat out in January.

Restaurant sales grew at a solid pace in January despite overall retail sales taking a hit. Given the positive sentiment, it would be ideal to invest in restaurant stocks such as Brinker International, Inc. EAT, Kura Sushi USA, Inc. KRUS, Darden Restaurants, Inc. DRI and Potbelly Corporation PBPB.

These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Restaurant Sales Continue to Grow

The Commerce Department said in its retail sales report that sales at restaurants totaled $90.8 billion in January, jumping 0.9% month over month after increasing 0.1% in the prior month. Year over year, retail sales increased 6.9% in January.

Economists consider eating at restaurants a significant measure of a household's financial situation. This means that despite price pressures, consumers have solid cash in hand, which has allowed them to spend lavishly at restaurants.

However, the report showed that retail sales fell 0.9% in January, its first decline since August and the sharpest drop in nearly two years. However, many experts see the unexpected drop in retail sales as a result of extreme winter temperatures and wildfires.

Restaurant Sales Poised to Grow

Although inflation has been on the rise over the past few months, consumers have been spending lavishly. The consumer price index (CPI) increased by 0.5% in January, following a 0.4% rise in December. This marks the sharpest increase since August 2023.

Rising prices have posed challenges for restaurant owners, as cost-conscious customers focus on getting the best value. Quick-service restaurants, particularly those emphasizing affordability, have remained resilient in this challenging market.

With budget-conscious diners looking for low-cost meal options, competition in the value-driven sector has intensified. To draw in and keep customers, brands are enhancing promotions and introducing cost-saving deals. Industry players are seeing consistent demand for budget-friendly options and competitive pricing strategies. Many restaurants are strengthening their marketing efforts, forming strategic alliances, and introducing new products to sustain customer engagement.

According to a report from the National Restaurant Association (NRA), the U.S. restaurant industry is projected to reach $1.5 trillion in 2025.

4 Restaurant Stocks With Upside

Brinker International, Inc.

Brinker International, Inc. primarily owns, operates, develops and franchises various restaurants under the Chili’s Grill & Bar and Maggiano’s Little Italy brands. EAT took over Chili’s, Inc., a Texas corporation, in September 1983 and completed the acquisition of Maggiano’s in August 1995. Chili’s is a preeminent leader in the bar & grill category of casual dining. The brand has been functioning for over the last 40 years.

Brinker International’s expected earnings growth rate for the current year is 98.8%. The Zacks Consensus Estimate for current-year earnings has improved 47.1% over the past 60 days. EAT currently sports a Zacks Rank #1.

Kura Sushi USA, Inc.

Kura Sushi USA, Inc. operates as a restaurant. KRUS offers nigiri, roll, hand roll, gunkan and desserts. Kura Sushi USA Inc. is based in Irvine.

Kura Sushi USA’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. Currently, KRUS carries a Zacks Rank #1.

Darden Restaurants

Darden Restaurants, Inc. is one of the largest casual dining restaurant operators worldwide. DRI has operations in the United States and Canada with more than 1,700 restaurants.

Darden Restaurants’ expected earnings growth rate for the current year is 7.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the past 60 days. DRI currently has a Zacks Rank #2.

Potbelly

Potbelly is a neighborhood sandwich concept. PBPB also offers sandwiches, salads, soups, chili, chips, cookies, ice cream and smoothies.

Potbelly’s expected earnings growth rate for the current year is 60%. The Zacks Consensus Estimate for current-year earnings has improved 14.3% over the past 60 days. PBPB currently carries a Zacks Rank #2.

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Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report

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Kura Sushi USA, Inc. (KRUS) : Free Stock Analysis Report

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